About a month ago, news emerged that Seadrill and Transocean, the offshore drilling heavyweights, were discussing a merger aimed at capitalizing on a rebound in investments in the business. Soon after, Portugal’s Galp launched its second drilling campaign offshore Namibia after a huge discovery, and Suriname is about to become the second Guyana. Offshore is back—and it’s back to stay.
Earlier this month, Wood Mackenzie reported that offshore drilling was going to increase significantly in the coming years, with production from the deepwater sector alone facing a surge of 60% by 2030. Fellow forecaster Rystad Energy in 2023 saw investments in offshore oil and gas drilling at $100 billion annually for 2023 and 2024. This year, it is expecting 2024 investments to reach $104 billion. That’s just the start of a boom.
Deepwater drilling has been a strategic focus for big oil companies for several years now, as fields in shallower waters mature and production declines, while demand for oil appears to keep going higher. Shale has been one diversification venue, but there isn’t space for everyone in the Permian—and there has been so much oil discovered in some parts of the world ocean.
Guyana comes to mind, of course, with the string of discoveries that Exxon, Hess, and CNOOC made off the coast of the tiny South American country. Its neighbor Suriname was a no-brainer in terms of more exploration, and it seems the results are encouraging: TotalEnergies announced a $10.5-billion commitment for drilling in the country’s water.
There is also Namibia, which appears to be the next hotspot for oil and gas in Africa. Big Oil majors are reporting discoveries potentially containing billions of barrels of crude, along with trillions of cubic feet of natural gas. And they are drilling more. Because shale oil won’t last forever.
The Financial Times reported this week that in 2025, offshore oil will account for more non-OPEC oil supply than U.S. shale oil. By 2030, offshore oil, and more specifically deepwater oil, will be “the key, if not the only, source of non-Opec oil growth,” according to Rystad Energy senior partner Espen Erlingsen, who added that “This comeback looks set to make the 2020s deepwater’s decade.”
Naturally, it is possible that U.S. shale could serve more surprises in the coming years. There are reports that Tier 1 production is running out, with the oil coming out of the ground increasingly light and sweet, but production growth has surprised before when predictions had it peaking. Even so, the investment trends in offshore oil suggest shale’s peak is on the horizon. The 2024 sum is a 50% increase on 2020. Even accounting for the fact that 2020 was a devastating year for oil investments as a whole, the increase is substantial in the context of the transition push.
The fact this investment may very well rise even further in the years to 2030 signals a rather optimistic frame of mind among energy companies even as they double down on their emission reduction pledges—because they have the technological know-how to make offshore drilling both cheaper, safer, and, apparently, lower-emission. Because this is where the oil of tomorrow will come from, per the industry.
“Vito represents the future of Shell in the Gulf of Mexico,” Shell’s general manager for U.S. growth assets, Ireti OMotoso, told the FT recently. “She is faster, leaner, creates less emissions, and is technologically more advanced than earlier platforms. She does a lot more for less.”
This seems to be the general message of Big Oil when it comes to offshore drilling. Because it is normally a lot more expensive than shale drilling, the industry has made an effort over the past decade or so to make every dollar count—and it seems to have succeeded. Sure, offshore drilling will remain a lot more expensive than shale drilling but those offshore wells will keep producing for decades, unlike shale wells.
This has, of course, raised the hackles of environmentalists who claim the world does not need any more oil and gas. Some have called for a moratorium on offshore drilling. “Big Oil’s attitude shows a lack of imagination beyond oil and gas,” Mark van Baal, head of activist group Follow This, told the FT. “At a time when the world must rapidly transition away from hydrocarbons, these companies are betting on decades-long fossil fuel projects and pouring huge amounts of capital into a market that will start declining before the end of the decade.”
The thing is that this market may well keep growing after the end of the decade. Guyana’s Stabroek Block alone is seen generating profits of $170 billion between 2024 and 2040, the FT notes in its report, citing Wood Mac—and that’s just the profits for the partners developing the field. Guyana will make another $190 billion in income from its oil in the same period. With profits like this, you don’t really need an imagination beyond oil and gas.
Soure: By Irina Slav for Oilprice.com